A lender is entitled to the return of its money where the solicitors it instructs complete a mortgage transaction with fraudsters in breach of the terms of its instructions.
In Mortgage Express v Iqbal Hafeez Solicitors, the defendant was approached by mortgage brokers acting for clients who had allegedly exchanged contracts with the vendors of three properties and paid a substantial deposit directly to those vendors. The claimant was approached to provide the finance. The approval for the loan was an automated process based upon the value of the properties being approved by the claimant's underwriter. The claimant then instructed the defendant in accordance with the Council of Mortgage Lenders' Handbook to act on its behalf in the usual way. The mortgage advance was transferred to the defendant who transferred it to the solicitors purporting to act for the purchasers.
The transaction was a fraud. The owners of the properties knew nothing about the transactions. The purported purchasers' solicitors did not exist. The claimant sought the return of the monies.
The court confirmed that the defendant was in breach of contract, in breach of trust and negligent. The defendant's actions were not dishonest but incompetent and showed there was little knowledge of conveyancing law or practice.
The defendant should have been put on notice as the same firm of solicitors purported to act in all three purchases. There had also been unusually large deposits, which had allegedly been paid direct to the vendors, the source of those deposits had not been ascertained, exchange had already allegedly taken place and completion was set for the same day on all three properties. The defendant had also failed to ascertain the existence of the solicitors. There had been no contributory negligence or imprudent lending on behalf of the claimant and without the defendant's negligent actions, the claimant would not have suffered a loss.
Things to consider
With a more experienced firm of solicitors, the alarm bells should have started ringing early on in such a transaction. The evidence here strongly suggested that the transaction was not the normal sort of conveyancing transaction and required further investigation to protect the lender.